PRIOR to the central bank’s latest reduction in the policy rate from 5.75 per cent to 5.50 per cent, the Jamaica Observer highlighted a definitive trend from BOJ data that “show non-performing loans increasingly concentrated in households and real estate, while credit growth to agriculture and tourism lags the wider system”. This follows the BOJ’s Financial Stability Report for 2024 which outlined that the expansion of the loan portfolio of deposit-taking institutions (DTIs) was concentrated mostly in the household sector, despite a slower overall pace of growth for all loans relative to 2023. While it is inconclusive to say that loans to households are cannibalising those to businesses, a distinct pattern is beginning to emerge — credit to the consumer sector is increasing relative to its productive counterpart.

The growth of private sector credit is linked almost inextricably with economic output. In the aftermath of Hurricane Melissa, S&P’s Banking Industry Assessment for Jamaica noted that, “Private credit growth is expected to support Jamaica’s return to its long-term GDP growth average of 1-2 per cent annually in the coming years.” In addition to its growth-inducing effect in the real sector, private credit expansion also strengthens financial deepening since private sector credit as a percentage of GDP is a common indicator of financial depth. However, private credit as a percentage of GDP continues to recover only slowly. From the early 1990s, due to the crowding out effect of increased public sector debt servicing in the aftermath of Jamaica’s financial sector meltdown, private credit as a percentage of GDP fell to a low of 11 per cent at the turn of the millennium, resulting in under-investment in programme and capital expenditure leading to suboptimal outcomes in health, education, infrastructure and the social safety net.

Since then, however, driven by an aggressive reduction in the public sector debt burden, this trend has been reversed such that private credit has risen to just over 50 per cent of GDP in the S&P assessment. While this figure is consistent with the average for Latin America and the Caribbean (52 per cent) and exceeds the average for the Caribbean sub-segment, (33 per cent), this pales in comparison to the world average of 146 per cent of GDP from the World Bank. With Jamaica’s macro-fiscal profile having been consolidated, resulting in the reversal of fiscal deficits and a staunching in the Government’s appetite for borrowing to finance them, the private sector is better positioned to reap the benefits of an increased availability of funds for productive activity.

However, the slowdown in lending to businesses relative to consumers has coincided with an extended period of elevated interest rates since the central bank’s policy rate was raised from its low of 0.5 per cent in September 2021 to a high of 7 per cent up to mid-2024. This slowdown in credit has also been reflected in diminishing corporate profits and declines across several stock market indices, indicating a general skittishness as companies remain hesitant to invest and operationalise plans for expansion due to the heightened cost of funds.

For the two-year period from August 2019 to September 2021, when interest rates were continuously at their lowest, the average yearly growth in loans to businesses (10.7 per cent) was higher than it was for households (9 per cent). However, since the period of monetary tightening beginning in October 2021 to the end of November 2025 (the latest month for which data is available) this trend has been reversed, with the average yearly increase in household credit (12 per cent) notably greater than those to businesses (7.6 per cent).

In absolute terms, the gap between household and business credit widened over the latter four years in the sequence. From 2019 to 2021 the difference between household and business credit remained flat, with the former exceeding the latter by a monthly average of $43 billion. From 2021 to 2025, however, this figure almost tripled to a $111-billion difference in favour of household credit. More loans are being taken out for consumption than production at a faster rate. The attendant effect has been a slight uptick in the proportion of past-due loans (PDLs) and non-performing loans (NPLs) in the household sector. Several reasons could explain this phenomenon, but the most compelling is probably found in the overleveraging on personal debt.

The twin shocks of surging inflation in the immediate post-COVID period and subsequently heightened interest rates to contain it have potentially caught up with many households, with their budgets becoming increasingly constrained amidst slowly growing incomes, necessitating an increase in borrowing and consequently a deterioration in credit quality. The increase in loan volumes to households also demonstrates the immediacy with which personal household decisions must be made.

While businesses retain sufficient capital and adequate buffers that could enable them to delay some categories of expenditure until monetary conditions become more favourable, the average household doesn’t have the same luxury, with predominantly essential-item spending and fewer cushions against shocks.

As credit to households moves apace, the simultaneous deceleration in business credit warrants even greater attention, not least because the industries which have experienced the greatest slowdown are also the ones to which Jamaica’s employment is intimately tied. The Jamaica Observer notes that among the sectors for which loans have grown the slowest are agriculture, tourism and construction. Between January 2019 (the earliest date for which this data is available) and the fourth quarter of 2025, these account for three of the top five industries which provided the largest net addition to employment over the period, with construction and real estate services at the apex. By occupation group, the categories Service Workers, Professionals, Managers, Senior Officials and Technicians accounted for the largest net increase in employment from January 2012 (the earliest date for which this data set is available) to the fourth quarter of 2025, which gives a clear indication of the link between the development of commercial real estate (offices, retail, restaurants, accommodation) and Jamaica’s employment and growth prospects.

Expectedly, the primary concern for policymakers rests with the trade-off between higher inflation and more accommodating interest rates to spur business activity. The elongated tightening of monetary policy has successfully corralled headline inflation within the central bank’s target band since double-digit post-COVID highs. Whether this has dampened overall domestic demand, however, remains the subject of debate. In a show of resilience and an inclination for continued business activity despite several challenges, demand for credit continues to increase in absolute terms and remains robust, but grows at an increasingly slower rate.

Keenan Falconer is an economist with experience across Jamaica’s public and private sectors and the multilateral financing space. Send feedback to keenanjfalconer20@gmail.com